Tony Payne: Retirement system can’t be sustained

There are a few facts about proposed changes in the financially strained Maine Public Employee Retirement System that deserve clarity and comparison.

First, teachers and state employees who have worked in those capacities for more than five years are not going to be forced to work any additional time in order to qualify for retirement under current proposals. Gov. Paul LePage’s proposal would raise the retirement age from 62 to 65 only for new employees and those who have worked fewer than five years.

By contrast, anyone in the federal Social Security system born after 1960 cannot receive full benefits until age 67. Why? Because we are living longer than the original legislation ever contemplated.

When Social Security was established way back in 1935, it set 65 as the age to qualify for full benefits. At that time the average life expectancy was 60 years of age for men and 64 for women. That meant that relatively few people would have to rely on the entitlement program for very many years beyond retirement. Today, Americans have a life expectancy of 78 years, yet the retirement age has barely budged.

Given the dire condition of both Social Security and the state’s retirement system, an increase in the retirement age is more than reasonable.

Second, public employees participating in the state system would be required to contribute 2 percent more to their retirement, which is 9.65 percent of their wages. Until this year, workers in the Social Security plan had to contribute 6.2 percent of their wages.

Unfortunately, Congress and the president recently chose to temporarily cut the Social Security tax to only 4.2 percent as another way to stimulate the economy. The tax cut will be funded by borrowing more money and going deeper into debt. This is only to point out that the federal government is no role model when it comes to fiscal responsibility.

The final point involves the proposed change in cost-of-living allowances. The governor proposes to freeze them for three years and then cap future adjustments to 2 percent per year thereafter. Neither the state system nor Social Security has adjusted the cost-of-living allowance in the past two years due to minimal inflation in the Consumer Price Index.

However, the index does not include the volatile costs of food and energy. A cost-of-living freeze and artificial cap will prove to be a hardship for all state retirees, particularly when inflation begins to eat away at fixed incomes. This is a legitimate beef for those who expected protection.

If some believe all we need to do is raise taxes, they should know that anyone in Maine making more than $20,000 in taxable income pays the highest rate of 8.5 percent. Normally, the highest tax rate is reserved for the wealthiest people, but not in Maine.

The fault in this fiscal predicament rests with those who underfunded the retirement system and also with voters who elected free-spending legislatures for so many years.

Those facts are lost in the protests, news interviews and pronouncements of union representatives who seem to think that anything but more pay and benefits are their due. For example, these are two of the state teachers’ union bargaining goals for 2010-11 as shown on their website:

• “All bargaining unit members should receive a real increase annually, i.e., a wage or salary increase at least equal to the annual increase in the cost-of-living, after accounting for any increased costs to the employee for maintenance of insurance benefits. “

• “(Teacher) associations should reject health insurance plans that reduce premium costs by shifting health care costs to consumers, such as high-deductible health care plans, whether or not enticements such as health savings accounts or health reimbursement accounts are offered.”

Such posturing will not solve the challenge of creating sustainable benefit plans any more than cutting the Social Security tax will balance the federal budget. We must meet in the middle and ask that the wealthy, the average and the entitled contribute to the solutions that will support financial security and set a course to grow the nation’s economy.

What do you think and what are you going to do about it?

Tony Payne is a lifelong Maine resident active in business, civic and political affairs. He can be reached at: [email protected]

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